As I write this post safely ensconced—and properly “socially-distanced”—in my home office, the annual rites of spring march on oblivious to the disruption caused by a global pandemic. The bulbs outside my window are in full-bloom, trees are budding out, and spindly-legged foals gambol about in their paddocks. Corporate annual meetings (another rite of spring), however, are not so immune. Millions of stockholders of Delaware corporations are currently under some form of “stay-at-home” restrictions, and applicable guidelines from health officials limit gatherings to no more than 5-10 people, each of which have to be at least 6 feet away from one another. These safety protocols, while necessary, make it essentially impossible to convene annual stockholders’ meetings as has been traditional–in person.
In this time of extreme disruption, Delaware corporations may continue to carry on the critical business attended to at the annual meeting of stockholders by taking advantage of the flexibility granted by the Delaware General Corporation Law (“DGCL”) to conduct such annual meetings “virtually” via electronic means. Moreover, as described below, Delaware corporations may also be given the freedom to delay their annual meetings until the biological dangers of in-person meetings have passed.
“Virtual” Annual Meetings
Section 211 of the DGCL was amended at the turn of this century to authorize corporations to hold annual meetings of stockholders “by means of remote communication” so long as it was not prohibited by the corporation’s charter or bylaws and was approved by the board of directors. Section 211 further gives the board sole discretion to adopt guidelines and procedures that would allow stockholders (or proxy-holders) to utilize “means of remote communications” such that they may:
1) participate in the stockholders’ meeting, and;
2) be deemed present in person and vote at a meeting of stockholders, provided that:
(i) the company implements reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder,
(ii) the company implements reasonable measures to provide its stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings, and
(iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action will be maintained by the company.
Corporations considering utilizing the freedom offered by Section 211 to conduct their annual meetings virtually should consult their governing documents to determine whether such meetings would be prohibited, and if not prohibited, the board of directors should establish proper procedures to ensure compliance with Section 211. If a virtual meeting is, however prohibited by the governing documents, and that prohibition is contained in the company’s bylaws, then the board of directors may have the power to amend the bylaws to allow annual meetings to be conducted by remote means.
Delayed Annual Meetings
To the extent a Delaware corporation has already given notice of an “in-person” annual meeting, another option may be to delay the convening of such a gathering until it is both safe and permitted by local orders. To the extent a company decides to delay its annual meeting, among the issues that might need to be addressed are: (a) federal securities laws and regulations related to notices and solicitations of proxies (recent SEC guidance on this front is addressed here), and (b) Delaware state-law matters related to the timing of annual meetings. For instance, DGCL Section 211 mandates that a corporation convene an annual meeting no later than 13 months since the last annual meeting or the last time directors were elected by written consent. Thus, a delayed annual meeting could run afoul of this timing constraint.
As of this morning, however, it appears that the Delaware State Bar Association (“DSBA”) is working on emergency proposals for the Governor and the General Assembly that would, if presented and adopted, (a) make clear in DGCL Section 110(a) that a pandemic or epidemic is a type of emergency that could trigger a board’s ability to adopt emergency bylaws, and (b) give the board of directors broad powers regarding the timing of and method of convening an annual meeting of stockholders beyond those discussed above. These proposed measures are currently making their way through the DSBA committee process.
These are rapidly-evolving times, so stay tuned for future developments on this front.